Swiss Reinstate Key Bank Buffer to Shield From Housing Risks
Switzerland Orders Banks to Hold Extra Real Estate-Risk Buffer
(Bloomberg) --
Switzerland took action to put the brakes on its surging property market amid warnings that housing is overvalued and risks of a crash are growing.
Regulators and the government agreed Wednesday to reactivate a buffer and ordered banks to hold additional capital against the threats posed by the real-estate boom.
The rule, which applies from Sept. 30, amounts to an extra 2.5% of risk-weighted assets linked to domestic residential mortgages. That’s higher than the 2% that was in place before the buffer was suspended early in the coronavirus outbreak.
A global real-estate boom, helped by huge fiscal and monetary stimulus, saw countries record surging property prices during the pandemic. The Swiss National Bank has repeatedly warned of the danger of a correction in the country’s market as prices rise and affordability becomes stretched. It’s also said housing is overvalued, something it repeated on Wednesday.
“Both the volume of mortgage lending and prices for residential property have risen more strongly than can be explained by fundamental factors such as rents and income,” the SNB said in a statement.
Switzerland’s countercyclical capital buffer was introduced as part of the reforms to make banks more resilient in the wake of the 2008 financial crisis. It was in force from 2013 to March 2020, when authorities eased rules to ensure banks continued lending to businesses and households hit by the coronavirus pandemic.
The Swiss Bankers Association said Wednesday’s decision, which lifts the buffer to a higher level than it was before March 2020, doesn’t sufficiently take the “stabilizing factors in the Swiss lending business” into account.
It also “distorts competition between the various players on the mortgage market because it only affects banks, not insurers, pension funds or online platforms,” SBA, which represents some 300 banks, said in a statement. “This is counterproductive in terms of stability.”
The country’s financial watchdog Finma said it supported the reintroduction of the buffer.
The volume of mortgages is “accelerating -- despite the coronavirus pandemic,” said Finma’s Jan Bloechliger. “The institutions are taking increasingly higher risks in mortgage lending.”
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